Cryptocurrency wallet types explained - which one should you choose?

Bitsgap

·

2018-12-11

One of the most intimidating things for brand new cryptocurrency users is learning how to store their cryptocurrency safely. There are tons of crypto wallets out there, and it’s difficult to know exactly which one to choose.

In this blog post, we will explore the many cryptocurrency wallet types and how they work. We’ll also assist you in figuring out which of these options is best for your situation!

How do cryptocurrency wallets work?

Information for cryptocurrency transaction is kept on the blockchain, but you need to have the right crypto wallet to get a hold of this info for yourself. The good thing about this is that your funds are never really lost.

However, it is totally possible to lose access to it, and that means that you should take the appropriate steps to safeguard your personal info. This means making frequent backups or keeping a recovery phrase handy and well protected. You can get into your wallet on multiple devices even using this backup.

Online

An online solution is a type of crypto wallet that’s accessed through a website domain. In most cases, these are the least secure kinds of wallets. That’s because online login credentials are very easy to steal through phishing, malware and browser vulnerabilities.

If you do want to use a service like this you should only use one that also has two-factor authentication. This provides an added security layer where you are forced to enter a passcode using your phone before being allowed to make deposits or withdrawals.

Mobile

Mobile crypto wallets are convenient and safe applications for your phone. In most cases, these are a pretty secure choice, but you should be aware that not every mobile app for cryptocurrency out there is legitimate! You should make sure to only use wallets with a solid reputation and to be careful that you do not accidentally download a “copycat” that could be an attempt to steal from you.

However, for crypto users who only use reputable software, there should be no issues. Make sure to create a backup of your seed phrase in case your phone is lost or stolen, but even if this happens, your funds should still be safe as long as your phone is passcode protected.

Desktop

Desktop solutions are the original cryptocurrency wallets, and they have many merits over other types of wallets. If you choose an official service or a third-party version that has a reputation for security, these are normally very safe.

You will, however, need to make absolutely sure that you have created a backup of your desktop wallet file or passphrase immediately because there’s always a risk of something happening to your PC or to your laptop. When using a desktop style service you should also be careful about what sites you visit and the kinds of things that you download.

These software packages can contain things like keyloggers or malware which try to steal passwords for popular wallets. So, while desktop clients are pretty safe, if you own a good deal of cryptocurrency, a cold storage option is the best for safety.

Cryptocurrency hardware wallet

Hardware solutions are always one of the safest ways to store your coins or token. These are wallets that are not online all the time, and that means your money is safe from attacks. Most people who have a great deal of cryptocurrency opt for this method. These devices still come with a backup phrase, and that means that you can restore that wallet on a new device should your current one become inoperable or is lost somehow.

There’s not really any cons to this one other than it’s a little less convenient when you want to buy things with your coins. Hardware wallets will cost you a bit more money, but for those with a lot of cash in crypto, it’s worth it.

Paper wallet

Paper wallets were the original “hardware wallet”. Before the above hardware services existed, people would actually print out their login information for safe keeping. This functions much the same way, but they don’t come with the benefit of having a pin code. It’s also a lot more difficult to retrieve the funds as you will need to first sweep the paper crypto wallet into a client wallet in order to spend it.

This method does, however, come with the benefit of being free, unlike a hardware wallet. Unfortunately, many newer currencies don’t offer this option. You can still use this for many legacy currencies though like Bitcoin and Ethereum.

How do you protect your cryptocurrency wallet?

Protecting a cryptocurrency wallet is the owner’s responsibility. If you don’t, it’s possible that your funds can be taken and you’ll never get them back. You should always protect your private keys, your backups, and your seed phrases. Never give them to anyone for any purpose. Even if that person says they are a “support” team member, they are lying.

Nobody should ever ask you for this as it gives them complete access to your wallet. Be careful about what applications you download or sites you visit that could contain malicious software that is looking to attack your wallets.

Cold Wallet

A cold service is a crypto wallet that does not ever stay online. This is the safest option for long-term storage because it severely limits the options for others to try to steal your information.

Hot wallet

A hot wallet is the opposite of the cold solution. It’s always online. While there are many security features in place for these wallets, they’re still not completely safe from theft. It’s not recommended to keep a ton of crypto in these wallets.

Hosted wallet

A hosted wallet is a type of wallet that is hosted by a third party. What this means is that they will control all of your personal information such as login, backups, etc. While some people enjoy being able to retrieve their logins, this can be a dangerous way to go. The owner of the service could close up shop at any time, taking your funds with them. Be careful who you choose when you utilize a wallet like this.

How to choose the best cryptocurrency wallet?

When it comes time to choose the best crypto wallet, It’s up to you to pick which is most appropriate for your situation. Don’t be afraid to use multiple wallets for different tasks either! Many people do this, and it’s always a great idea to spread out your risk and limit losses.

You can set up a hot wallet for spending or getting payments and a cold one to be used for long-term storage of your coin stash or cryptocurrency long holds.